POLAND: Foreign Debts Grow as Economic Reforms Fall Short of Goals : Hopes Fade, Debts Grow in Poland : Economic Reform Program Failing in Divided Nation

WARSAW —  Three years ago, as it held Poland in the grip of martial law, the government of Premier Wojciech Jaruzelski launched a far-reaching program of economic reform designed to lift the country from the mire of its $26-billion debt to the West and to pacify a divided and sullen nation.

This year was to have marked the end of a three-year transition to a new era of decentralized control over industry, the emergence of factory “self-management” by workers’ councils and the beginning of an admittedly long road to prosperity.

So far, the grand vision has not come to pass.

Stalled Reforms

Thousands of self-management groups have sprung up in the factories, but there is little evidence that they take any part in management. Reforms that are supposed to free market forces in the economy have stalled in a bramble of red tape and an atmosphere of bureaucratic resistance and popular mistrust. And Poland continues to sink deeper into debt.

“This is not a normal economy,” a Western ambassador in Warsaw said, with sympathy and sadness in his voice. “It is a disaster.”

This year, as in every year in the recent past, Poland is expected to fall at least $1 billion behind in its interest payments to the West. The debt figure crept past $28 billion in 1984, and Polish officials expect it to reach $30 billion by the end of this year. They say it may not stabilize until 1990-91 at $34 billion.

Yet Poland’s exports to the West--its sole means of paying off its debts and buying the imported goods it needs to survive and produce exports--show little or no potential for growth in the next few years. In the view of some Polish and Western economists, Poland’s export earnings could flatten out or even decline this year.

Quality Decline

Exports are jeopardized by an alarming slide in the quality of manufactured goods, brought on by aging and deteriorating equipment, a lack of imported components and a mood of apathy, if not outright resistance, among millions of workers who still harbor the defiant spirit of Solidarity, the independent trade union movement that was outlawed under martial law.

As reforms have stalled, the government has reverted to the familiar tactic of exhorting workers to put their shoulders to the wheel. There is, however, little to inspire Polish workers to greater feats of socialist labor while the government continues to raise the prices of food and other consumer goods to bring them into line with production costs.

While the government holds out its bright vision of future prosperity to be won through sacrifice, a skeptical work force, which heard such promises after the upheavals of 1956, 1970, 1976 and 1980, sees only the sacrifice--a growing burden here and now of rising prices and persistent scarcity in the stores. Even the new, official trade unions are saying that bonuses for better work mean little when the zloty buys less and less of what little there is to buy.

“Poles have much more strength than they care to show,” Deputy Premier Mieczslaw F. Rakowski said in an interview published last month. “Why don’t they show it? Because they are overwhelmed by the crisis.

“But instead of struggling against the crisis, a large section of society prefers to grumble, complain and wait. . . . We need to pull ourselves together, to shake ourselves free from idleness and regain our self-confidence.”

A Warsaw housewife with a small child and an ever-tighter budget answered the deputy premier this way:

“My mother’s generation was told they had to sacrifice to make a better life for us, so they did, and look what we have. Now, we’re being told we have to sacrifice to make a better life for our children. How many generations is this supposed to go on?”

420% Inflation

Meanwhile, the social fabric seems increasingly tattered. A 420% rise in consumer prices, only partially offset by wage increases, has brought a measurable decline in standard of living since 1980, as indicated by a 15% drop in food consumption. Two more stages of price increases are nevertheless scheduled for April and June.

Official figures show that crime increased 20% last year in Warsaw and 9% in the country as a whole. Poland’s age-old plague of alcoholism is compounded now by spreading drug addiction, which is estimated to involve 220,000 young people in a nation of 37 million.

The barometers of public health also point to deteriorating sanitary conditions in retail food outlets and in the food processing industry. Last year, Poland recorded a 50% increase in documented cases of dysentery, salmonella and other food- and water-borne gastrointestinal infections.

Moreover, Poland’s sour mood of discouragement has been further irritated by new tension between Jaruzelski’s government and the Roman Catholic clergy, whose tremendous moral authority balances the police power of the state.

Increased propaganda attacks on the church, which reflect a sense of insecurity in the regime, have eroded what credibility the authorities managed to accrue after the end of martial law in 1983. The new tension between Communist state and Catholic society have made it all the harder to sell the public on the need for still more belt-tightening, for dedication to work and faith in the future.

Official View

Despite all these difficulties, the authorities insist that Poland’s economic outlook is not all that bleak. They point out that after a steep slide in 1980-82, the economy has registered modest growth over the last two years, rising about 5% in 1984 as industrial production has come back up to the 1979 level.

By cutting imports of consumer and industrial goods to the bone, Poland has managed to reverse the huge trade imbalance it financed with credits through the 1970s and into the early 1980s. Last year brought an export surplus of $1.5 billion, thanks largely to Poland’s 2.8 million private farmers, who reaped a bumper crop in good weather, and coal exports, boosted by the sale of reserves left over from the previous mild winter.

Some leading Polish economists, however, tend to agree with Western analysts who fear that this progress will prove ephemeral.

“True, improvement was recorded in industrial production and exports,” economist Cezary Jozefiak observed recently in an an article that appeared in the official journal Zycie Gospodarcze (Economic Life). “But . . . it was not based on durable foundations.”

The reform program is now in “intermission” at least until the end of 1985, Jozefiak said. His article, which was widely discussed, concluded that “no forces are in sight which would actively support a market-oriented reform” of the kind needed to resuscitate the economy.

Winter’s Blow

This year’s unusually severe winter, one of the coldest of the century, has dealt another blow to Poland’s hopes for recovery. Production of coal, steel, cement and fertilizer dropped sharply in the first two months of this year as transport slowed and energy supplies were diverted to heating.

Jaruzelski himself warned recently that as a result of the winter’s ravages, “it looks as if we are in danger of losing what we achieved” over the last two years, and he called on workers to redouble their efforts.

The crux of Poland’s problems, and the most crippling factor in its economy, is its huge debt. It is the legacy of former Communist Party leader Edward Gierek, who now lives in obscure retirement.

Gierek’s strategy in the 1970s was to modernize Polish industry with Western credits, to be paid off with exports back to the West. However, low quality made Polish goods largely unsalable, except to Poland’s Communist neighbors. Much of the envisioned industry remains in a suspended state of construction or in mothballs for lack of imported components. When the end came in 1981, and the West began cutting off credits, Poland was literally eating half of its borrowed money in the form of imported grain and fodder that went to feed pigs and poultry.

By the summer of 1983, Poland had reached agreement with Western banks to reschedule and postpone payment on the commercial part of its debt, owed to Western banks. Last January, Warsaw initialed, but has not yet signed, an agreement with the so-called Paris Club of 17 Western nations to reschedule the remaining $12 billion in principal and interest, with payment to stretch over six years beginning in 1990.

Analysts Disagree

The government has hailed this latest agreement as the beginning of the end of its debt problem, a light at the end of the tunnel that signals readiness in the West to lend more money. Diplomatic analysts disagree.

The debt situation, one Western economist said, “is terrible.”

Poland can expect to earn about $6 billion this year on its exports, of which it must spend $4.5 billion on such vital imports as agricultural chemicals and medications that are not made here--and on components for its exports. This will leave $1.5 billion for interest payments on the rescheduled debts. But the interest amounts to $2.7 billion a year.

Economists expect Poland to scrape together a few hundred million in additional income--partly through new banking regulations that allow Poles to deposit dollars in low-interest savings accounts, no questions asked, if they do so by April 1. With an estimated $3 billion circulating in private hands, this amounts to taking a cheap, short-term loan from the thriving black market.

At the bottom line, however, Western and Polish analysts expect a shortfall of about a billion dollars this year on interest payments to Western creditors, which will be added to the debt.

The shortfall will be no worse than last year’s, but it occurs against the background of a weakening ability to export manufactured goods, the only field open to significant expansion.

Defective Goods

Customs figures show that the value of defective consumer goods sent back to Poland--including 50,600 pairs of shoes and 5,000 tape recorders--rose by 75% in the first half of 1984, to $3 million. This apparently did not include the two out of five newly built ships Sweden sent back for extensive repairs.

More worrisome was a $140-million drop in exports from 270 factories, 38 of them classed as major industrial facilities, whose exports are an important factor in the economy. A published survey of their problems, which ranged from deteriorating equipment to a lack of imported components to fierce Japanese competition, concluded that 11 of the 38 plants might recover to some degree. But the other 27 factories “do not expect recovery; moreover, they expect a further decline in exports” to Western countries.

Amid signs of urgency, Warsaw has begun to solicit fresh credits in the West. It argues that new loans are the only means it has of expanding exports to meet its debt payments. The government spokesman, Jerzy Urban, has strongly suggested that Warsaw will not sign the Paris Club agreement if fresh loans are not forthcoming.

“It would not serve Poland’s interest to sign an agreement it cannot fulfill,” Urban said last week.

Poland’s chief negotiator with the Paris Club, Zbigniew Karcz, puts the case more diplomatically.

‘Bitter Experience’

“I’m not afraid to say this openly,” he said. “Should Poland allow its foreign debt to grow further by contracting new loans? Poland has had its own bitter experience in this respect, but these bitter experiences should teach us how to use loans properly. After all, Poland is not always foredoomed to make the wrong decision, is it?”

Some diplomats in Warsaw who monitor Poland’s lame economy have their doubts.

“They have come to us asking for loans for, of all things, consumer goods and heavy industry that can have no conceivable impact on their exports in the next five or six years,” said a West European economic analyst who asked not to be identified by name or nationality. “It was as if the Gierek era was starting all over again, ready to make the same mistakes.”

Like others among his Western colleagues, he was reluctant to forecast Poland’s future, in the knowledge that “the only predictable feature of Poland is its unpredictability.”

“Our estimates of the economy go up and down,” he said. “But right now they are very low.”